Calculate the maximum bid

Assignment Help Finance Basics
Reference no: EM13281859

Real Option jack Black is an international conglomerate with a petroleum division and is currently competing in an auction to win the right to drill for crude oil on a large of land in one year. The current market price of crude oil is $58 per barrel, and the land is believed to contains 375,000 barrels of oils. If found, the oil would cost $35 million to extract. Treasury bill that mature in one year yield a continuously compounded interest rate of 4 percent, and the standard deviation of the returns on the price of crude oil is 50 percent. Use the black-scholes model to calculate the maximum bid that the company should be willing to make at the auction.

Verified Expert

This question deals with finding a current bid price by using Black Scholes Model which is the most conman pricing model.

Reference no: EM13281859

Questions Cloud

Which ball hits the ground first and why : A physics demo launches a ball horizontally while dropping a second ball vertically at exactly the same time. Which ball hits the ground first? and why
Antioxidant and an antioxidant enzyme system : Write an essay that explains the difference between an antioxidant and an antioxidant enzyme system. Include a description of the catalase reaction, the glutathione peroxidase enzyme system, and SOD (superoxide dismutase). Explain the free radical th..
Freedom from unauthorized intrusion is known as privacy : A legal concept for information passing between people that cannot be submitted into evidence in a court of law because of the relationship between the individual is referred to as:
Maintain the balance between effective detection techniques : How do we maintain the balance between effective detection techniques, which require some intrusion into our private lives, and the protection of our civil liberties?
Calculate the maximum bid : Use the black-scholes model to calculate the maximum bid that the company should be willing to make at the auction.
Find the distance travelled by the shuttlecock : Determine the position vector of any point on the line Y A, and hence find the position vector of the point X. Deduce that the shuttlecock cannot land in the shaded area of the court.
Society thought that the fingerprint was the magic key : Many thought that DNA was the ultimate answer, but most crimes don't involve DNA evidence. Remember that once upon a time, society thought that the fingerprint was the magic key, What is next?
What is the appropriate cost of common equity : Sonderson Corporation is undertaking a capital budgeting analysis. The firm's beta is 1.5. The rate on six-month T-bills is 5%, and the return on the S&P 500 index is 12%. What is the appropriate cost of common equity in determining the firm's cos..
Calculate the term of the bond : A bond with a face value of 100, 000 has coupons of 3% per annum payable semi-annually. It will be redeemed at par. It is purchased for a price of 91,825. At this price the yield to maturity is 4% per annum convertible semi-annually.

Reviews

Write a Review

Finance Basics Questions & Answers

  How would you assess the value of this liability

Explain what questions would you raise with the CEO over the firm's litigation liability - How would you assess whether the firm should record a liability for this risk, and if so, how would you assess the value of this liability?

  Why is national average property tax rate likely to affect

Why is the national average property tax rate likely to affect the return to capital in investments other than real estate?

  Compute the maturity risk premium

Key's Corporation's five year bonds yield 6.50% and five year T-bonds yield 4.40%. The real risk free rate is 2.5%, the default risk premium for Key's bond is DRP is 0.40%,

  Revenue source for health care organizations

Governmental sources and private payers are just a few examples regarding sources of health care revenue. Compare and contrast characteristics of following reimbursement sources:

  Calculation irr, npv, mirr, payback and discounted payback

Calculation IRR, NPV, MIRR, payback and discounted payback and if the projects are mutually exclusive, which would you recommend

  Compute the break-even point in boxes

Jack and Joe, Corporation, sells fine chocolates at $15 a box. The fixed costs of this operation are $80,000, while the variable cost each box is $10.

  Calculate the dollar value of australian consumer surplus

Calculate the dollar value of Australian consumer surplus and producer surplus. Price of TV???s Quantity Demanded Quantity Supplied $500 0 50 $400 10 40 $300 20 30 $200 30 20 $100 40 10 0 50 0

  Capital structure-leverage

What is the market value of Locomotive Corporation before and after the repurchase announcement? What is the expected return on the firm's equity (rS) before the announcement of the stock repurchase plan?

  Calculate risk premium on common stock in each year

Here are stock market and Treasury bill returns between 2000 and 2004: Calculate the risk premium on common stock in each year?

  Evaluate the pros and cons of offshore outsourcing

Evaluate the pros and cons of offshore outsourcing for the countries involved. What happens to jobs, resource utilization, knowledge, experience, and expertise of the countries involved with outsourcing? Does society at large benefit?

  Explain how this action might affect the book value

what this would suggest about the market's assessment of the valuation of the firm going forward. Be specific in your answer.

  Show the range in the npvs for each variable and chart

Show the range in the NPVs for each variable and chart the analysis. Which variable has the highest risk and which variable has the lowest risk? Explain.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd